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April 7, 2020

Chief Counsel’s Office

Attention: Comment Processing

Office of the Comptroller of the Currency

400 7th Street, SW, Suite 3E-218

Washington, DC 20219

Robert E. Feldman, Executive Secretary

Attention: Comments RIN 3064-AF22

Federal Deposit Insurance Corporation

550 17th Street NW

Washington, DC 20429

OCC Docket ID OCC-2018-0008

FDIC Docket ID RIN 3064-AF22

To Whom It May Concern:

The National Association of Affordable Housing Lenders (NAAHL) appreciates the opportunity to

comment on modernizing the Community Reinvestment Act (CRA) regulation.

Introduction

NAAHL is the only national alliance of major banks, community development financial

institutions (CDFIs), state and local housing finance agencies (HFAs), and other capital providers

for affordable housing and inclusive neighborhood revitalization. (A list of NAAHL members is

attached.) This mix of deeply experienced practitioners across sectors gives us a uniquely

balanced perspective on the proposed rule and its likely effects.

In 2018, NAAHL member banks made 829,346 loans totaling $124.8 billion for low- or

moderate-income (LMI) people and communities, including:

• 263,624 single-family home mortgages totaling $41.0 billion to LMI borrowers or census

tracts;

• 4,045 multifamily mortgages totaling $23.2 billion in LMI census tracts;

• 556,059 small business/farm loans totaling $19.2 billion in LMI census tracts; and

• 5,618 community development loans totaling $414 billion.

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We applaud the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance

Corporation (FDIC) for publishing a Notice of Proposed Rulemaking (NPR). We share OCC/FDIC’s

(the Agencies’) commitment to modernizing the CRA regulation.

• We agree with the Agencies that a strong CRA continues to be vital to the economic

health of LMI communities and people. America’s economy, financial system, and society

can be strong only if all people and communities can contribute to and benefit from

them. CRA has significantly helped to include LMI people and places in the U.S. banking

system. CRA modernization must strengthen, not weaken, financial inclusion.

• We agree that CRA modernization is long overdue. Banking, communities, and the

practice of community development (CD) have all changed dramatically in the 25 years

since CRA regulations were last changed significantly. CRA has become foundational to

the success of affordable housing and economic development policy and practice.

• We agree that more clarity about what activities count is essential, including those

outside assessment areas (AAs). Banks will provide more financing for activities they are

confident will receive CRA credit.

• Greater clarity will expand capital for communities, reduce regulatory uncertainty and

burden for banks, and simplify the examination process for Agency staff.

• We agree that more data could help to establish clearer performance benchmarks and

contribute to simpler and more streamlined performance evaluations.

Regretfully, however, we must oppose the proposed rating framework – centered on the CRA

Evaluation Measure – because it: (1) will not fit all banks, communities or economic conditions;

(2) subordinates the important and currently central roles of CD and retail lending distribution;

and (3) adds substantial new administrative burden. Instead, we believe it will have unintended

negative consequences for both communities and banks. We provide greater detail of our

concerns and offer practical alternatives for the Agencies’ consideration below.

We encourage the Agencies to work with all stakeholders to address these flaws before

finalizing the rule. Banks and their community partners will rightly be pre-occupied with

responding to the Covid-19 national emergency and its many economic and financial hardships.

LMI people and communities are especially vulnerable to the emergency’s severe health and

economic consequences. Banks, CDFIs and other reinvestment partners are essential economic

first responders both in minimizing the immediate financial harm to individuals and businesses

and then supporting their recovery. We appreciate that the federal banking agencies have

suspended action on other pending banking rules that are not urgently necessary to respond to

the crisis. We therefore request that the Agencies postpone further work on finalizing and

implementing a final rule until conditions stabilize.

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Qualifying Activities Criteria

We greatly appreciate the Agencies’ effort to clarify which activities qualify for CRA credit,

especially for CD. The lack of adequate clarity has been a significant obstacle to CD. Addressing

these uncertainties is a major reason NAAHL has supported additional policy guidance. Banks

will provide more financing for activities they are confident will receive CRA credit.

In addition to discussing many of the activities eligible under the NPR, we also recommend

retaining four CD activities that the Agencies would disqualify: home mortgages for middle-

income borrowers in LMI neighborhoods, letters of credit, neighborhood stabilization and

revitalization, and economic development.

More specific comments on a broad range of eligible activities follow.

• Home mortgages for middle-income borrowers (though not to high-income borrowers)

in LMI geographies should continue to qualify for CRA credit. We strongly disagree with

the Agencies’ proposal to disqualify this activity because practitioners and researchers

have long recognized that the presence of middle-income homeowners is important to

the stability of LMI neighborhoods. In fact, the seminal modern analysis of urban

poverty, The Truly Disadvantaged, by Harvard University’s William Julius Wilson,

identified the concentration of poverty and the loss of middle-income families as a

fundamental source of inner-city distress.1 The Agencies should not ignore decades of

theory and practice. We believe that the Agencies’ stated concern to avoid fostering

gentrification and displacement actually applies to a relatively limited number of low-

income neighborhoods, mostly in high-growth cities – for most neighborhoods,

disinvestment remains the dominant challenge.2 A more effective way for the Agencies

to avoid encouraging gentrification and displacement would be to discredit any

Opportunity Zone fund activity that does not primarily benefit LMI people, especially

since the design of Opportunity Zone incentives favors gentrification.

• Multifamily housing loans to individuals should be classified as CD activities and not

home mortgage loans. The mere fact that the borrower is an individual rather than a

corporation, partnership or real estate investment trust does not change the substance

of the activity. All multifamily housing loans should be treated consistently. We also note

that Call Report Schedule RC-C does not appear to distinguish among multifamily

housing loans based on borrower characteristics.

1 William Julius Wilson, The Truly Disadvantaged: The Inner City, the Underclass, and Public Policy,

University of Chicago Press; Second edition (July 10, 2012)

2 See inter alia: Michael Maciag, “Gentrification in America Report”, Governing, January 31, 2015,

https://www.governing.com/templates/gov_print_article?id=289584741; and Joe Cortwright, “CityLab:

Everything You Think You Know About Gentrification Is Wrong,” www.cityobservatory.org/citylab-

everything-you-think-you-know-about-gentrification-is-wrong/, January 8, 2019;

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• Small business/farm loan limits for borrower revenue and loan amounts should remain at

their current $1 million levels. The Agencies propose to increase the loan size limit in LMI

areas to $2 million and the business revenue and loan size limits elsewhere to $2 million.

These increases are not justified, notwithstanding inflation since the $1 million limits

were established, because the primary need for small business and farm credit remains

the greatest below $1 million. One of our concerns with the CRA Evaluation Measure is

that it strongly favors large loans over small loans; increasing the $1 million small

business/farm loan and revenue limits would deepen this flaw. Moreover, raising these

limits would be administratively burdensome. For example, it will be extremely difficult

for banks to identify the revenue of businesses/farms that already have loans but were

not identified as CRA-eligible when the loans were made. We also advise against regular

inflation adjustments to these limits because banks would have to make costly and

burdensome changes to their systems. In addition, there would be significant associated

training issues in multiple lines of business each year, further complicated by unwieldy

and immaterially small adjustments that result in very odd threshold amounts. Thus,

annual adjustments would only lead to additional costs and confusion, clearly running

counter to the stated objectives of CRA reform.

• Partial and primary LMI benefit for CD activities. In almost all cases, we support partial

(pro-rata) CRA credit – but not full credit – for activities where LMI people and places

receive the minority of benefit. In addition, we oppose any credit for activities where LMI

people and places receive less than 20 percent of the benefit, since such little benefit is

incidental and unsubstantial. The 20 percent threshold is standard for federal affordable

housing policies, including Low Income Housing Tax Credits, tax-exempt multifamily

housing bonds, and HUD’s HOME Investment Partnership program. As such, virtually all

CD activities from which LMI people or places receive 20-50 percent of the benefit

should qualify for pro-rata credit.

We are especially concerned about granting full CRA credit for infrastructure projects

and projects supported by Opportunity Zone funds.

o Infrastructure projects would get full credit under the NPR regardless of LMI

benefit, provided they do not exclude LMI people and places. For example, an

interstate highway or a road in Beverly Hills, CA would qualify for credit,

presumably unless LMI people are explicitly prohibited from using them. This

standard is prima facie inadequate and would divert resources away from

genuine CD activities. We believe it would be practical to establish a rubric for

allocating LMI benefit. For example, interstate highways should be excluded

entirely, and local roads should be included based on the portion located in LMI

or other targeted areas.

o Opportunity Zone fund activities are especially dubious because the capital gains

tax benefits are structured to favor activities that primarily benefit upper-income

people or promote gentrification and the displacement of LMI people.

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Investments likely to generate greater capital gains are those that appreciate in

value the most. However, high rates of real property value appreciation depend

on rapidly rising rents, which for housing undermines affordability and for

commercial real estate generally assumes gentrification.

We would, however, support full CRA credit for:

o Rental housing undertaken in conjunction with an explicit government policy for

LMI benefit, provided that LMI residents occupy at least 20 percent of the units.

Many governmental affordable housing programs and policies expressly support

or accommodate housing in which LMI people occupy at least 20 percent of the

units. These policies include Low Income Housing Tax Credits, tax-exempt

multifamily housing bonds, the HOME Investment Partnerships program, and

various state and local governmental policies. The corresponding current policy

(based on an examiner’s determination after the fact that an activity was

undertaken based on the express, bona fide intent, purpose, or mandate of CD)

has proven unworkable. We note that examiners have applied the current

standard inconsistently and arbitrarily, to the point where some affordable

housing sponsors were compelled to devise costly and burdensome financial and

property ownership structures in order to avoid adverse interpretation by

examiners.

o Projects in Indian country. Median incomes in Indian country tend to be

exceptionally low, so setting benefit standards as a percentage of median income

will render most affordable housing financially infeasible. In addition, few high-

income people reside in Indian country so the opportunity for abuse is negligible.

o Financial education. It would be impractical to require documentation of

participants’ incomes. Such a requirement could also be counterproductive if it

discourages participation.

• Affordable rental housing. We applaud the Agencies for bringing much needed clarity to

the eligibility of affordable rental housing based on the affordability of rents. The current

policy standard based on likely LMI occupancy has proven unworkable for unsubsidized

properties, which include 80 percent of all affordable rentals. The income of renters of

unsubsidized housing cannot be readily documented, generally because lenders do not

have access to this information or because specific residents cannot be identified while

properties undergo construction or substantial rehabilitation. We especially appreciate

the requirement that rent affordability applies to both current/initial rents and to future

rents projected at the time of the loan or investment. This standard will protect against

qualifying housing that, while currently or initially affordable, is expected to have

unaffordable rents in the future, perhaps as a direct result of the financing.

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We also support the NPR’s inclusion of affordable housing: (1) partially or primarily

benefiting LMI renters based on a governmental set-aside; (2) undertaken in conjunction

with an explicit governmental policy to serve LMI residents; and (3) in high-cost areas

that partially or primarily benefits middle-income renters as demonstrated by a

governmental affordable housing set-aside or in conjunction with an explicit government

affordable housing program for middle-income families or individuals in high-cost areas.

• Mortgage-backed securities (MBS). The final rule should carefully balance two legitimate

needs: (1) for banks to use MBS to fulfill their minimum CD obligations in AAs where

other opportunities may be constrained; and (2) to avoid crowding out other CD

activities by excessive reliance on MBS. Accordingly, we propose that U.S. government

supported MBS (i.e., MBS guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae)

contribute no more than 20 percent of a bank’s CD test activity at the institution level,

with no limitation at the AA level and with no limitation with respect to the CRA

Evaluation Measure. From a business management perspective, U.S. government

supported MBS is highly attractive because it: (1) is plentiful (backed by trillions of dollars

in LMI mortgages); (2) is globally liquid; (3 requires little or no risk-based capital support;

(43) can be easily obtained at scale; and (5) requires no staff with CD expertise. Absent

some reasonable limitation, MBS could easily crowd out other CD activities important to

LMI people and places. At the same time, these other CD activities may not be readily

available in every AA, including some rural areas and even urban areas with a high

degree of competition among banks. We believe the answer is to provide full flexibility

for U.S. government supported MBS at the AA level but limit MBS at the bank level to 20

percent of CD test activity.

• Essential infrastructure. As noted above, we oppose full CRA credit for infrastructure

activities where LMI people and targeted places receive only partial or even incidental

benefit. We do recognize the importance of infrastructure to needy communities,

including distressed and underserved rural communities. However, the NPR’s proposal

represents a dangerous dilution of CRA’s mission to serve LMI and other targeted places.

Although the NPR would require some de minimus LMI benefit, this standard is both too

vague and so loose as to encompass roads that LMI people may use, such as an

interstate highway or Rodeo Drive in Beverly Hills where LMI store clerks may work. We

disagree that documentation of LMI benefit is impractical. For example, a road or

broadband that partially serves a LMI area could easily qualify for partial or primary

benefit.

• Family farms. The NPR provides for counting support for many of the same farms under

both a small farm lending distribution analysis and as a CD activity. In such a case, a $1

million limit on loan size and revenue should apply for both purposes. According to the

USDA Farm Service Agency, 96 percent of all family farms in the U.S. have revenues

under $1 million, so that limit would: (1) be broadly inclusive while still targeting support

to the smaller farms that need it; (2) provide consistency with the current small farm limit

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under the retail loan distribution test, which we recommend retaining; and (3) not

impose unnecessary, additional administrative burden on banks.

• Affiliate activities. Under the NPR, the Agencies would count activities that a bank

substantively conducts but that are formally executed by an affiliate. However, in the

many cases where an affiliate (not the bank) substantially conducts the activity, that

activity would not be counted. We oppose this proposal and recommend retaining the

current policy, under which a bank may elect to include affiliate activities provided that

another affiliate has not already received CRA credit for the activity and the bank does

not cherry-pick the loans to be included within the same loan category. There are often

good business reasons why the affiliate may substantively conduct CRA-related loans,

investments and services, sometimes at the bank’s request. The Agencies should not

exclude these activities from CRA consideration.

• Another bank’s CD loan, CD investment, or CD service. The preamble discusses a large

bank that finances a project identified by a community bank. The Agencies should clarify

how CRA credit would be recognized in such case. Would the community bank get credit

for a loan or investment it identifies but does not make and, if so, what would that

consideration be, how would it be documented, and would both banks receive

duplicative consideration for the same financing?

• Qualified Opportunity Funds that benefit LMI communities. As previously noted, the

Opportunity Zone incentives strongly favor activities unlikely to substantially benefit LMI

people, such as high-income housing, land speculation, downtown office buildings, and

high-tech business relocations. Banks should not receive CRA credit for such activities.

Opportunity Zones are unusual among CD policies in two respects: (1) unlike other

targeted tax incentives, Opportunity Zones do not require any LMI benefit or even the

reporting of expected or actual LMI benefit; and (2) the incentive amount depends on

capital appreciation, which in turn favors areas undergoing the kind of rapid property

value appreciation associated with gentrification and perhaps the displacement of LMI

residents and small businesses. Accordingly, support for Qualified Opportunity Funds

should be limited to activities that serve another identified CD purpose, such as

affordable housing or neighborhood stabilization or revitalization.

• Capital investment, loan participation, or other ventures undertaken by a bank in

conjunction with a minority depository institution, women’s depository institution, CDFI,

or low-income credit union that helps to meet the credit needs of the institution’s or

credit union’s local communities. We generally support this approach but have two

recommendations. First, the word “local” should be deleted because some CDFIs and

perhaps other identified entities operate on a regional or national basis. Support for

these regional or national entities deserves favorable consideration too. Second, the list

of bank partners should be expanded to include nonprofit organizations that hold a

charter from NeighborWorks America – which is federally chartered and whose board is

governed by federal banking and other financial regulators. These mission-driven

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organizations undergo rigorous financial and management assessments prior to

receiving their charters and on an ongoing basis thereafter. Furthermore, membership in

the NeighborWorks network is only available to organizations that demonstrate a

commitment to resident leadership, ensuring that the organization continues to

represent the interests of the communities in which it works.

• Legally binding CD investment commitments. We support this provision and recommend

that it be extended to include legally binding CD loan commitments too. In general, we

believe that the eligibility of a CD activity should not depend on whether it takes the

form of a loan or investment. Legally binding commitments to lend and invest are both

valuable to CD.

• Letters of credit. The NPR would disallow consideration of letters of credit that support

CD activities. We urge the Agencies to reconsider this provision. Letters of credit are an

important element of affordable housing finance. For example, it is very common for

banks to provide letters of credit that are essential to tax-exempt affordable housing

bonds issued by HFAs. Letters of credit expose banks to the same credit risk as direct

loans and should be treated as equally valuable to LMI people and communities. CRA

policies should accommodate efficient market executions that minimize costs and

maximize LMI benefits.

• Neighborhood stabilization and revitalization. Neighborhood stabilization and

revitalization are among the most basic CD activities. We appreciate that activities

consistent with bona fide government plans would specifically be eligible. However, we

urge that the Agencies also recognize activities that support the provision of goods and

services in LMI and other targeted areas. For example, grocery stores, pharmacies, and

professional offices provide essential goods and services as well as jobs; however, they

would be eligible under the NPR only if they meet the small business loan or revenue

standards, receive public program support, or are deemed consistent with a government

plan.

• Economic development. While retaining certain specific economic development

activities, the NPR removes more general LMI job creation and retention activities

because the Agencies cannot provide a workable definition other than providing “low

wage jobs.”3 We urge the Agencies to reconsider this dismissive decision. The Brookings

Institution has found that “53 million Americans between the ages of 18 to 64—

accounting for 44% of all workers—qualify as ‘low-wage.’ Their median hourly wages are

$10.22, and median annual earnings are about $18,000.”4 While it may be unfortunate

3 Federal Register, Vol. 85, No. 6, January 9, 2020, p. 1213. 4 Martha Ross and Nicole Bateman, “Low-Wage Work Is More Pervasive Than You Think, and There Aren’t

Enough ‘Good Jobs’ To Go Around”, Brookings Institution blog, November 21, 2019,

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that low-wage work is so widespread in the U.S., these jobs are critically important to LMI

people and communities. Moreover, there is considerable room to include LMI jobs that

pay substantially higher wages, based on 80 percent of the U.S. median household

income of $61,937 in 2018.5 In our members’ experience, the current CRA policy has

indeed proven workable and should be retained. However, if the Agencies so desire, it

would not be hard to develop a clear and reasonable standard for LMI job creation

based on median wages paid by a business, just as the Agencies have proposed a

reasonable eligibility standard for affordable rental housing based on median rents.

• CD services and donations. Volunteer services and donations can be important elements

of CRA, but they should be limited to supporting organizations with a primary CD

purpose. That is not to say that CRA activities must be limited to financial matters. For

example, helping nonprofit CD organizations to improve their use of technology or

management skills are also valuable.

In addition to donated services, CRA should recognize other services that banks provide

to support CD activities. For example, some banks provide investment banking services,

either directly or through an affiliate, such as underwriting bond issuances for CDFIs and

HFAs. The value of these services far exceeds $36/hour.

• Distressed middle-income areas. We support extending the concept of distressed

middle-income areas to metropolitan areas. Threshold distress determinations should

apply at the city, town and county levels, not at the census tract level. If distress is

established for a local jurisdiction, then activities in its middle-income census tracts

would be eligible. Our recommendation aligns with the policy currently applicable to

distressed middle-income nonmetropolitan areas, which determines distress at the

county level and then applies to activities in middle-income census tracts within that

county. Whether in a metropolitan or non-metropolitan area, the purpose should be to

help middle-income census tracts located within local jurisdictions that are broadly

suffering economic distress. For example, because cities such as Cleveland, Detroit, Gary

and Flint have high overall poverty rates, even their middle-income neighborhoods tend

to be fragile and in need of stabilization, even though these neighborhoods themselves

may not have poverty rates as high as the citywide rates. Applying the distress

designation at the census tract level would exclude these neighborhoods.

• Underserved middle-income areas. The concept of underserved middle-income areas

should not be extended to metropolitan areas. The current policy for non-metropolitan

https://www.brookings.edu/blog/the-avenue/2019/11/21/low-wage-work-is-more-pervasive-than-you-

think-and-there-arent-enough-good-jobs-to-go-around/

5 Gloria Guzman, “U.S. Median Household Income Up in 2018 from 2017”, U.S. Census Bureau, September

26, 2019, https://www.census.gov/library/stories/2019/09/us-median-household-income-up-in-2018-

from-2017.html

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areas, which we continue to support, is intended to reach isolated rural communities

based on their small population size, low density, and distance from population centers.

These concepts are generally not applicable within urban areas, though they should be

extended to the rural portions of metropolitan areas, as defined by USDA. The Agencies

propose to apply the concept based on the presence of bank branches. However, there

are many middle-income suburban communities (and perhaps city neighborhoods) that

lack a bank branch but are not underserved, economically fragile, and in need of

stabilization to the point where special CRA designation is justified.

• Securities-based lending. Securities-based lending (i.e., where securities held at a bank-

affiliated broker-dealer serve as collateral for a personal loan) should not be treated as

consumer loans. Banks generally offer these loans as an accommodation to existing

clients and not to the general public. LMI consumers are not an appropriate market for

such loans because few LMI consumers maintain broker-dealer accounts.

Qualifying Activities Confirmation and Illustrative List

• Qualifying activities illustrative list. We support the Agencies’ proposal to publish and

regularly update an illustrative list of eligible activities, but this list should be updated

annually, not at least every three years as proposed. Three years is too long to wait for

such updates, especially since the Agencies will be responding to individual bank

requests for qualifying activities confirmation on an ongoing basis. Waiting too long to

update the illustrative list will cause some banks to miss helpful opportunities and other

banks to request confirmation of the same qualifying activities, unnecessarily creating

more work for Agencies’ staff.

• Qualifying activities confirmation. We support the Agencies’ proposal to confirm that an

activity is eligible in response to a bank’s request, but the activity should be treated as

eligible if not rejected within 30 days, not the six months period proposed. Banks must

have clarity on a timely basis so they can respond to loan or investment proposals.

Qualifying Activities Quantification

• Primary Benefit. We oppose recognizing primary benefit (and thereby awarding full CRA

credit) for activities where LMI people and places receive the minority of benefit if the

express, bona fide intent, purpose, or mandate of the activity is CD. This concept appears

to come from current policy, where it is typically associated with affordable rental

housing undertaken with governmental support. As noted earlier, examiners have

applied the current policy inconsistently and arbitrarily. However, since governmentally

supported affordable rental housing separately qualifies for primary benefit, extending

the concept to purely private activities would be confusing and prone to abuse.

• Loans originated and sold. The NPR establishes a CRA Evaluation Measure based on the

number of months a loan is held on a bank’s balance sheet. A retail loan that is

originated and sold within 90 days is treated as if it were on the balance sheet for 90

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days. However, this approach is seriously flawed and will have adverse unintended

consequences for consumers, communities, and banks.

The primary business execution for home mortgages (as well as a common and growing

practice for multifamily rental housing mortgages) is for the originating lender to sell the

loan into the secondary market, typically through Fannie Mae, Freddie Mac, or Ginnie

Mae. (A similar practice also applies to SBA Section 7(a) guaranteed small business loans,

although not through the same intermediaries.) This execution is advantageous to

originators because it: (1) provides liquidity to lenders so they can use the proceeds from

the loan sale to make additional loans; (2) transfers credit risk; (3) transfers interest-rate

risk; and (4) releases capital reserve requirements. It is advantageous to consumers and

communities because it: (1) enables long-term, fixed-rate mortgage structures that

borrowers strongly prefer; (2) reduces interest rates, thereby reducing monthly

payments; and (3) enables LMI people and communities to participate in and benefit

from the American mainstream financial system. The deep and globally liquid secondary

mortgage market includes trillions of dollars in LMI mortgages within MBS guaranteed

by Fannie Mae, Freddie Mac, and Ginnie Mae.

Since the expected life of a 30-year home mortgage loan is seven to eight years – or

about 90 months – a bank would have to originate and sell about 30 home mortgages to

get the same CRA credit as for holding a single home mortgage it originates for its

expected life. This perverse reward structure pits maximizing CRA credit against the

shared interests of banks, borrowers, and communities in accessing the secondary

market. In our discussion of performance measurement below, we offer an alternative

approach that addresses this serious problem. In short, we argue that the CRA Evaluation

Measure should consider originations of retail loans rather than monthly balance sheet

amounts.

• Legally binding CD investment commitments. The NPR would value legally binding

commitments to invest based on their average month-end amount. In our discussion of

performance measurement below, we recommend that CD investment commitments –

and CD loan commitments as well – should be counted when and in the amount made.

• Legally binding CD loan commitments. The NPR would value legally binding CD loan

commitments based on the allowance for credit losses – far less than for CD investment

commitments. We recommend that commitments to lend and invest should be valued

the same way – i.e., when and in the amount made. Valuation should not differ based on

the form of financing that is committed.

• CD services and donations. The NPR’s proposal to value volunteer CD services based on

a uniform wage rate, such as $36, or more detailed Bureau of Labor Statistics wage rates

based on job categories. A uniform rate would be much easier to implement, but an

hourly rate of $36 is far too low to be meaningful. It would take 55,000 hours of

volunteer activity to generate the same credit as a $1 million loan that is repaid after two

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years. At this rate, CRA will motivate few if any banks to provide volunteer services. The

Agencies should consider applying a high multiplier and/or make the tracking and

reporting of CRA-qualified volunteer services optional because the small CRA credit will

not justify the administrative burden.

Similarly, cash and in-kind donations to nonprofit CD organizations are far more

important than their size indicates. Because most banks have limited donation budgets,

it is imperative that the Agencies apply a high multiplier – such as 10 times – otherwise,

CRA recognition for grants and in-kind donations will be virtually negligible. As we

discuss in the performance measurement section, a fully rated CD test that integrally

reflects the substance and impact of activities such as volunteer activities, grants and in-

kind donations – and not just their dollar value – would help to address this concern.

Qualifying Activities Valuation

• Multipliers. The Agencies propose to apply a multiplier of two for activities supporting

affordable housing, CDFIs, and investments except for MBS and municipal bonds. We

agree that these activities merit additional consideration. We do not oppose multipliers

in principle, but we are concerned that they will be ineffective or counter-productive in

the context of a pass-fail CD test. Instead of stimulating targeted activity, banks might

diminish these activities either because: (1) it will be easier to meet their CD requirement

through MBS, infrastructure or less impactful CD activities that are larger or easier to

execute or may consume less capital; or (2) the multiplier reduces the overall amount of

CD activity needed to reach the 2 percent target. To encourage banks to exceed a CD

minimum amount, in the performance measurement section below we propose a fully

rated CD test that would expressly reflect qualitative factors, such as responsiveness to

community needs, in addition to dollar volume. Finally, the Agencies should explain the

analysis they used to choose a multiplier factor of two instead of another number.

We also recommend a multiplier for activities that primarily benefit people and places

that are low-income (as distinguished from moderate-income). It is significantly harder

for banks to reach low-income people and places than those of moderate-income, and

such activities tend to be smaller. As such, a CRA Evaluation Measure driven by dollar

amounts will diminish attention to low-income people and places.

Assessment Areas (AAs)

• Facility-based AAs. We support the retention of facility-based AAs as well as the

boundaries proposed in the NPR. We especially support a bank’s option to designate a

non-metropolitan statewide AA, for several reasons. First, such AAs will increase

attention to rural communities by aggregating their deposit bases. Second, in many

cases a smaller rural AA, such as a county, will not generate significant opportunities for

CD activities every year, unfairly causing banks to fail their 2 percent CD test. Third, in a

small rural AA some banks pass over large CD activities as excessive for what a bank

needs in that AA. Fourth, reducing the number of small AAs will greatly streamline the

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examination process. We appreciate that the OCC has recently examined non-

metropolitan AAs on an aggregated statewide basis. We hope that approach becomes

the norm.

• Deposit-based AAs. We appreciate that facility-based AAs will inadequately capture the

activity of banks that operate predominately outside their branch footprints or have no

branches at all. However, we oppose the establishment of deposit-based AAs for these

banks and instead propose an alternative that more accurately and completely reflects

their business model. (For convenience, we call these “internet” banks even though some

may have one or a few branches.)

o The deposit-based AA concept misconstrues internet banks as a string of local

community banks instead of as nationwide banks that draw deposits and provide

services without regard to local markets or local physical presence. This old

paradigm is just as misguided as conceiving of Netflix as a series of local

Blockbuster Video stores or Amazon.com as a series of local brick-and-mortar

retailers. Trying to fit internet banks into a traditional branch-based bank

framework will not succeed.

o Because internet banks have no local presence, it will be very hard for them to

have specific and multifaceted responsibilities within specific markets. This is not

to suggest that internet banks should not be expected to meet their full, fair

share of responsibility under CRA. Rather, internet banks that operate nationwide

should have nationwide responsibilities that are evaluated on a nationwide basis.

o Rather than encouraging internet banks to reach into underserved markets,

including rural areas, deposit-based AAs are most likely to be the most populous

markets for the simple reason that areas with the most people are likely to

generate the most deposits. The most common deposit-based AAs would be

California, New York (city and state), Florida, Texas, Illinois, and Los Angeles.

These are the same markets where large concentrations of banks with CRA

responsibilities already exist.

o While activities in a few deposit-based AAs would get more scrutiny, they would

not cover most of an internet bank’s overall deposit activity, which occurs across

the many more markets that generate less than 5 percent of a bank’s deposits.

Instead, we propose a different way to evaluate internet banks, which might be defined

as those deriving less than 20 percent of their deposits from facility-based AAs. (In

practice, most of these banks obtain a far smaller share of their deposits from facility-

based AAs.) Our approach would treat internet banks as essentially nationwide

institutions, fully accountable without establishing deposit-based AAs. It would be

simpler and more flexible than deposit-based AAs. Under our alternative:

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o Retail loan distribution would be compared with national distribution

benchmarks. For example, if LMI households receive 20 percent of all home

mortgages made by banks nationwide, an internet bank would be compared

against that benchmark. If a mortgage is LMI in its local market, it would count as

such for this purpose. Although median incomes and the LMI share of mortgages

will vary across markets, national benchmarks should work well because the

preponderance of an internet bank’s activity occurs outside its facility-based AA.

This approach would treat internet banks differently from more traditional banks,

which would have a retail distribution test only for their facility-based AAs but

not at the bank level. However, as discussed in greater detail below, any retail

lending distribution test should include both “originated and purchased loans,” as

is currently the case under the “lending test”.6

o CD activity outside an internet bank’s facility-based AA would be considered on a

nationwide basis. In this regard, internet banks would be treated the same as

other banks under the NPR, since in either case CD activity nationwide would be

measured at the bank level (assuming the bank performs satisfactorily in most of

its AAs and in AAs where a bank receives most of its deposits).

• Use of depositors’ physical address to determine deposit location. We support this

proposal. It should cool certain CRA hot spots and set a more accurate benchmark for

evaluating AA performance.

• Activities outside AAs would count for evaluation of bank-level performance. We

support this proposal. It will encourage and reward banks that serve LMI people and

places nationwide, including underserved markets. It will also reduce administrative

burdens, not just for banks but also for their partners.

• Broader statewide and regional areas (BSRAs) for CD activities. We support retaining

BSRAs (with modifications provided below) because they give banks more flexibility to

address regional needs. Although we also support counting CD activity outside AAs at

the bank level, for very large banks the bank-level deposit totals are so large that it is

difficult for CD activity outside the AAs to affect a rating. Because AAs are smaller, BSRAs

provide a more powerful incentive. In addition, if deposit-based AAs are implemented,

some may be in a single city or county where CD requirements would be hard to achieve

unless activities within the BSRA can be included. To improve the effectiveness of BSRAs,

the Agencies should provide that:

6 See 12 CFR 25.22(a)(2) and 12 CFR 345.22(a)(2).

15

o BSRA boundaries should follow the U.S. Census regional definition7 plus any state

adjacent to a state that includes an AA. Lack of clear BSRA boundaries has chilled

the use of BSRAs.

o Use of BSRAs should be available only to banks whose most recent published

rating was satisfactory or outstanding. The current policy creates confusion

because it recognizes BSRAs only if a bank is adequately responsive to its AA’s

needs, but that is determination is unhelpfully made during an examination years

after financing decisions must be made.

o If more than one AA is located within a BSRA, credit for an activity should be

assigned: (1) based on the activity’s location within an AA or (2) otherwise, among

AAs based on their relative share of the bank’s deposits.

Performance Measurement

As its name indicates, the CRA Evaluation Measure (CRA-EM) is the predominate basis for a

bank’s presumptive CRA rating. It is a ratio in which: (1) the numerator is the annual dollar

volume of a bank’s total CRA qualified activity on the bank’s balance sheet; and (2) the

denominator is the bank’s domestic retail deposits with certain adjustments. This CRA-EM may

be enhanced up to one percentage point based on the share of a bank’s branches in LMI census

tracts. The CRA-EM is applied at both the AA and bank levels. The CRA-EM is the only test that is

fully rated (i.e., from outstanding to substantially noncompliant). In addition, a bank must also

meet minimum thresholds on a pass-fail basis for retail lending distribution (AA-level only) and

CD activity (both AA- and bank-level). A bank must have a satisfactory or outstanding rating in

most of its AAs and in AAs generating most of the bank’s deposits to achieve the corresponding

rating at the bank level. Finally, the bank-level rating may be adjusted downward based on

certain discriminatory or other illegal practices and a bank’s performance context may affect a

rating. The same performance measurements and thresholds apply to all but the smallest banks

(unless they opt in).

Regrettably, we must oppose this structure, particularly because it rests so heavily on the CRA-

EM. The Agencies acknowledge that most respondents to OCC’s advance notice of proposed

rulemaking also opposed an earlier but substantially similar CRA-EM. Accordingly, we urge the

Agencies to work with all stakeholders to address widely held concerns before publishing a final

rule. If the Agencies persist in pursuing the CRA-EM, we propose constructive changes that can

mitigate its shortcomings.

• The CRA-EM is flawed. The CRA-EM is too flawed to be the predominate basis for a

rating for several reasons:

o One size will not fit all banks, communities, phases of the economic cycle, or

structural changes in the U.S. financial system.

7 https://www2.census.gov/geo/pdfs/maps-data/maps/reference/us_regdiv.pdf

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▪ Banks have very different business models and sizes. A $1 billion

community bank, a $1 trillion multiregional bank, an internet bank, a

wholesale bank and a limited purpose bank are too fundamentally

different for the same yardstick. Even banks of similar size, location,

product mix and lending activity would fare very differently if one bank

retains mortgages on its balance sheet and another sells the mortgages it

makes on the secondary market.

▪ Similarly, local communities vary so greatly in size, character, condition,

and needs that an aggregate dollar volume measure cannot capture a

bank’s responsiveness. CRA is more than just a numbers game for LMI

communities; it is their economic lifeblood. The CRA-EM’s indifference to

the specific needs of local communities would defy the purpose of CRA.

▪ Lending and investing opportunities rise and fall substantially with

economic conditions. For example, LMI mortgage originations were about

three times higher in 2005 than in 2011.8 The same CRA-EM ratio could

reflect poor performance in 2005 and excellent performance in 2011. In

addition, in economic downturns it is common for investors to shift more

of their holdings into bank deposits, thereby increasing the CRA-EM’s

denominator and making it harder to maintain a satisfactory or

outstanding ratio. For communities, a CRA-EM would provide banks little

motivation to lend in good times when more borrowers are most

creditworthy and would push lenders to make risky loans in bad times.

We are already seeing significant economic dislocation from the current

Covid-19 crisis.

▪ Home mortgage and small business lending have been shifting from

banks to other lenders. Other lenders now originate most home

mortgages and are increasing their share of small business lending. Fixed

performance thresholds do not reflect this secular or long-term structural

change, especially since banks have different product mixes.

o Balance sheet only. The CRA-EM represents a fundamental shift away from CRA’s

core purpose of encouraging banks to make loans and investments in favor of

measuring the stock of loans and investments a bank holds on its balance sheet.

▪ This change provides perverse incentives with adverse consequences for

LMI people and communities. Since a bank would have to originate and

immediately sell about 30 home mortgages to get the same CRA credit as

8 Lael Brainard, “Strengthening the Community Reinvestment Act by

Staying True to Its Core Purpose”, Federal Reserve Board of Governors, January 8, 2020, Figure 5.

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for holding a single home mortgage for its expected duration,9 the

obvious incentive is for banks to forego the origination of mortgages in

favor of retaining the loan (or, alternatively, purchasing and holding MBS).

Originating home mortgages is already far more costly than buying MBS,

an imbalance for which CRA policy should provide some counterweight.

More broadly, once a bank attains its targeted amount of balance sheet

holdings, it can reduce its new lending and investment activity to what is

needed to replace run-off. The result will be less new access to new

capital for LMI people and places.

▪ The Agencies justify the CRA-EM’s sole focus on balance sheet assets

because it “would help to eliminate the apparent inflation of the level of a

bank’s CRA activity that results from banks purchasing loans or

investments just prior to a CRA evaluation and then selling those loans

and investments when the evaluation is complete.”10 However, this

objective can be easily accomplished through simple and far less drastic

changes. For example: (1) full CRA credit could be awarded for originating

any qualified loan or investment or for purchasing it from an unrelated

originator, as under current CRA policy; and (2) prior period CD loans

and investments should be credited consistent with current policy for

investments.

▪ Building and maintaining complex new systems to identify which retail

loan assets will qualify for CRA credit and tracking them on a monthly

basis will add substantial administrative disruption and cost, as well as

ongoing burden for banks. Banks will have to make numerous additions

and changes to multiple core systems and processes. For a major bank,

each line of the call report has numerous – sometimes dozens – of

general ledger accounts across several systems that feed into it. As new

general ledger accounts are added, the CRA requirements will have to be

identified and addressed. Moreover, instead of the current practice of

documenting a loan origination once, it will be necessary under the NPR

to track balance sheet activities every month, often for several years, with

geometric increases in data integrity burden and cost. As just one

example, even assuming that an activity in an LMI census tract will

continue to qualify even if the tract subsequently loses its LMI status or

the tract’s boundaries change, calibrating data systems to account for

9 As noted earlier, a typical home mortgage has a life of seven to eight years (i.e., about 90 months),

generating about 30 times as much CRA credit as the three months credit the NPR would provide for

originating and selling a mortgage into the secondary market.

10 Federal Register, Vol. 85, No. 6, January 9, 2020, p. 1213.

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these changes will be difficult and subject to error. Continuing to use

existing data reporting for retail lending would avoid these problems.

▪ Although the retail lending distribution test will track the originations by

loan count (vs. dollar volume), that test is pass-fail (vs. fully rated) so it

provides little incentive for banks to exceed minimum thresholds.

Moreover, because a bank can pass the test by lending at only 65 percent

of its peers’ performance, the pass-fail structure invites a race to the

bottom, with ominous consequences for LMI people and communities.

o No clear basis for thresholds. The Agencies have not provided clear justification

for setting initial performance thresholds (i.e., 11 percent for outstanding, 6

percent for satisfactory, and 3 percent for needs-to-improve). In fact, the

Agencies requested information on banks’ current balance sheet activity only

after publishing the NPR and it is not clear whether enough banks of various

types were able to provide enough data to form a solid basis for these

thresholds. As such, we cannot assess their appropriateness. However, it is fair to

expect that any fixed performance threshold will be too high in some

circumstances and too low in others. Although the Agencies could adjust the

initial performance benchmarks by as much as 50-100 percent over time, it would

be impractical to make all the adjustments needed to capture all dimensions of

variability. Moreover, such adjustments would undermine the objectives of

predictability, transparency and fairness.

o Small activities discouraged. The focus on dollar volume strongly discourages

small loans and investments. The fastest and easiest way for a rational bank to

meet its CRA-EM targets will be to make the largest loans and investments

possible. However, this incentive structure disadvantages the many LMI families

who need low-balance home mortgages, the many small businesses and farms

that need low-balance loans, and the communities where the size of a CD loan or

investment may not reflect its significance. Rural communities and metropolitan

markets with low housing prices would be especially disadvantaged. Obtaining

smaller loans and investments is a serious and chronic challenge for communities

because making them is inherently less profitable for banks. CRA policy should

offset this disincentive, not exacerbate it. In contrast, current CRA policy

recognizes this concern by focusing on the number of loans, not the volume of

loans, and by differentiating among small business loans based on their size.

• An Alternative Rating Structure. If the Agencies are nevertheless committed to pursuing

the CRA-EM, we propose changes to the overall rating structure to minimize its flaws.

Three fully rated tests should contribute to a bank’s CRA rating at both the AA and bank

levels: (1) the CRA-EM; (2) retail lending distribution; and (3) CD.

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o Each test would have five rating levels: outstanding, high satisfactory, low

satisfactory, needs to improve, and substantial noncompliance. Fully rated tests

for retail lending distribution and CD would provide incentives for more than

minimally acceptable performance. They would also discourage a race to the

bottom for retail lending, where each bank must perform at only 65 percent of

the level of its peers, gradually pulling down industry-wide performance. We urge

the Agencies to include both a high satisfactory and low satisfactory rating

because it is important to differentiate among the 75-80 percent of all current

ratings that are satisfactory. For a bank’s final rating, we recognize that the

statute does not permit distinguishing between high and low satisfactory

performance.

o Excellent performance on one test should compensate for weak performance on

another test, as well as within the retail lending distribution test. Here again,

banks should be motivated to perform as well as possible on each test. The NPR

would create counterproductive and unnecessary cliff effects at both the AA and

bank levels by requiring banks to pass each of several measures. This inflexible

requirement will be especially challenging at the AA level because conditions,

opportunities and circumstances vary so greatly among AAs while performance

thresholds would remain constant everywhere. For example, a bank that finances

auto loans for a luxury car dealership would likely fail CRA in an AA entirely

because LMI people buy few luxury cars. With that understanding, that bank

might rationally give up trying to make other LMI retail or CD loans in an AA

where it cannot hope to achieve a satisfactory rating.

o CD test. The CD test should fully incorporate such factors as performance

context, responsiveness to local needs, innovativeness, complexity and

leadership. We generally support reducing subjectivity in the CRA exam process

where practical, and we believe that defining the eligibility of CD activities more

clearly is the critical avenue for improvement; it would be a mistake to over-

simplify how the significance of eligible activities is assessed. It may be possible

to quantify some of these elements – for example, a transaction with more than

three or four sources of financing might be deemed “complex” – but some

judgment should remain integral to evaluating CD properly. We strongly affirm

the need for longer-term CD financing, especially since secondary market outlets

for CD financing are limited. It is important to balance this concern with the over-

riding and continuing imperative to encourage new CD financing. Accordingly,

we propose that: (1) CD loans and investments, including legally binding

commitments to lend and invest, should generate full CRA credit in the exam

period made or acquired; and (2) prior period CD loans and investments should

be credited consistent with current policy for investments.

o Retail lending distribution test. The retail loan distribution test should apply at

the bank level, not only at the AA level. For most banks, the bank-level

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distribution should reflect a weighted average of activity within their AAs. For

“internet banks”, as described above in the discussion of deposit-based AAs,

bank-level retail lending distribution analysis should reflect both AA and

nationwide activity. In addition, the proposed retail lending distribution test

should count both originations and purchases of loans, as provided in the current

lending test. Purchasing loans made by CDFIs and HFAs can be particularly

beneficial.

o Connecting AA-level and bank-level performance. Having a full range of ratings

for the CD test and retail lending distribution test, combined with the ability to

offset weak performance on one measure with excellent performance on another

measure, should inform the appropriate share of AAs where a bank must have

outstanding or satisfactory performance to achieve a similar rating at the bank

level. A rigid structure, as presented in the NPR, favors having a lower threshold

for the share of AAs with outstanding or satisfactory ratings; a more flexible

structure, as we recommend, would be consistent with requiring outstanding or

satisfactory ratings in a greater share of AAs.

• Defining domestic retail deposits. We recommend that domestic retail deposits should

include only those intended primarily for personal, household or family use, as reported on

Call Report Schedule RC-E, items 6.a., 6.b., 7.a(1), and 7.b(1). Corporate deposits can be large,

lumpy and arbitrarily associated with a single AA, especially when received from major

corporations that operate regionally, nationally or even globally. In addition, corporate

treasury accounts are easily moved from one bank to another and their balances are highly

volatile, so the deposits are not readily available for lending. We recognize that banks with

assets under $1 billion do not report deposits intended primarily for personal, household or

family use. However, most small banks have a limited number of corporate accounts whose

deposits they could choose to subtract. In addition, banks with assets under $500 million do

not have to opt into the new regime.

• Retail lending in the CRA-EM. For the CRA-EM, retail lending should track the dollar volume

of retail loans originated plus loans purchased from an unrelated originator and not re-sold

for at least a year, not the balance sheet holdings of retail loans. We recognize that dollar

volumes are the essential common measure across all financing categories under the CRA-

EM. However, the dollar volume of loan originations and purchases would be a better and

less burdensome metric for retail lending than balance sheet holdings. Tracking balance

sheets would substantially increase administrative costs for little or no additional benefit,

since banks already track the volume of retail loan originations and purchases under both

the current system and the proposed retail lending distribution test. The Agencies proposed

a balance sheet metric for the CRA-EM primarily to discourage the churning of MBS and

similar instruments. However, MBS would be treated as CD investments, not as retail lending.

To prevent churning of retail loans that are purchased, we propose CRA credit only for

purchases from an unrelated loan originator. A purchased loan should receive CRA credit

only once, as under current CRA policy, thereby eliminating incentives for churning. Finally, it

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is not necessary to promote long-term retail lending, since a robust secondary market exists

for home mortgages and because small business/farm loans appropriately tend to have

shorter terms.

• Balance sheet activity measured monthly. Measuring balance sheet activity monthly would

be administratively burdensome. Fortunately, our alternative approach would consider

balance sheet holdings only once at the end of the exam period and only for CD activity, for

which longer-term loans and investments are both important and secondary markets are not

broadly available. Accordingly, balance sheet reporting would be greatly reduced.

• Consumer lending consideration. Consumer lending and related data collection/reporting

requirements should apply only at a bank’s option or if consumer loans comprise the

substantial majority of a bank’s lending, as provided under current policy. In addition, retail

lending distribution analysis should not apply to consumer lending because industry-wide

data would not be available and because LMI consumers are not an appropriate market for

certain loan categories, such as luxury car loans. Access to consumer loans, such as credit

cards and auto loans, is abundantly available to LMI and other consumers, even with CRA’s

current limited coverage. In addition, requiring all banks to meet consumer lending

distribution metrics could have the adverse consequence that banks may be compelled to

offer and aggressively market credit products to LMI consumers on unfavorable terms.

Accordingly, any marginal benefit to LMI people from greatly expanding CRA coverage

would be outweighed by the substantial resource burden on banks of collecting and

reporting consumer lending data.

• Performance benchmarks for CD and retail lending distribution. As with CRA-EM

performance thresholds, we cannot assess the appropriateness of the 2 percent CD

benchmark and 55 percent and 65 percent retail lending distribution demographic and peer

benchmarks, respectively. The Agencies should provide more analysis to justify them.

However, we believe it is highly unlikely that such thresholds will fit all product types, banks,

communities and economic conditions.

• Home mortgage demographic benchmark. The Agencies propose a demographic

benchmark that compares LMI home mortgage lending against the LMI share of families

within each AA. However, home prices vary greatly among markets – the median home value

in San Jose is $1,265,000, 10 times higher than Peoria’s $120,700.11 As such, the

opportunities for LMI homeownership are not comparable across markets. A better

benchmark would be the LMI share of homeowners within each AA.

11 National Association of REALTORS, “Median Sales Price of Existing Single-Family Homes for

Metropolitan Areas,” https://www.nar.realtor/sites/default/files/documents/metro-home-prices-q4-2019-

ranked-median-single-family-2020-02-12.pdf

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• Home mortgage lending in LMI neighborhoods. The retail lending distribution analysis

should include a measure of home mortgage lending in LMI neighborhoods. The need for

this lending was the original reason CRA was enacted and access to this lending remains

important today. It would be ironic – and mistaken – for CRA “modernization” to remove the

explicit focus on LMI neighborhood mortgage lending. As discussed earlier, we also strongly

recommend that home mortgage lending to middle-income borrowers (though not to high-

income borrowers) in LMI neighborhoods should continue to be an eligible activity.

• Minimum loan volumes for retail lending distribution analysis. The minimum threshold of 20

loans within a retail loan category over an examination period is far too low to be statistically

valid. Twenty loans over a three- or five-year examination period means an average of five to

seven loans per year and even fewer in any given year. To inform a meaningful annual

analysis, a more appropriate threshold would be an average of 50 loans per year.

• State-level ratings. The Agencies propose that a bank will receive an outstanding or

satisfactory rating at the state level if it achieves such ratings in a “significant” share of its

AAs within that state. The Agencies should define “significant” more clearly. In addition, at

least some level of activity should be required in each AA within the state. A bank should not

completely disregard the needs of any AA.

• Performance context. We are concerned that the NPR’s framing of performance context

appears to significantly diminish its role. Consideration only once a presumptive rating is set

relegates performance context literally to an after-thought. Further, the “innovativeness,

complexity, and flexibility of the bank’s qualifying activities”12 are significant for reasons

beyond their effect on a bank’s capacity to meet performance standards. Indeed, properly

assessing a bank’s CD activities requires a prior understanding of community needs and

opportunities, as well as how the bank uses its capacities to respond to them within its

competitive context. The many banks that make the effort to understand and effectively

address community needs deserve additional recognition for fulfilling the true spirit of CRA.

Unfortunately, the NPR’s framing suggests that the primary use of performance context in

the future will be to excuse a bank that performs below normal expectations.

• Wholesale and limited purpose designations. We urge the Agencies to retain designations

for wholesale and limited purpose banks and establish separate performance standards for

them because the range of their product offerings is not comparable to full-service banks. It

is important that CRA rules take account of different business models and should tailor

exams accordingly, a time-tested approach there is no compelling reason to change. In

particular, a wholesale bank, which by definition does not offer retail products such as

mortgage or small business loans (except on an accommodation basis), would need to meet

its entire CRA performance benchmarks through community development activity. Limited

purpose banks would face similar challenges.

12 NPR §25.14(b)(1) and §345.14(b)(1).

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• Strategic plans. We support the NPR’s retention of a strategic plan option, especially for

banks, such as internet banks, whose business model is not suited to the general

performance standards. We recommend that the Agencies: (1) be required to act within 60

days of an initial submission of, or an amendment to, a strategic plan; (2) clarify the role of

community input, especially for banks whose strategic plan will cover a broad geographic

area, including multiple AAs or the entire nation; and (3) allow amendments to a plan if bank

or economic conditions change. The regulation should also explicitly give banks the option

to use different performance benchmarks. Under the current regulations, a bank may design

a CRA program that responds to the needs of the community and fits the bank’s business

model. The current Q&A guidance notes that institutions are provided flexibility in

specifying goals. That flexibility should be maintained.

Data Collection, Recordkeeping and Reporting

New data collection, recordkeeping and reporting will be expensive and burdensome. Existing

data requirements should be used to the extent possible and new requirements should be

imposed only where necessary.

• Balance sheet data should not be required for retail lending. In the above discussion of

performance measurement, we recommend using data on loan originations and

purchases for the CRA-EM, since existing systems already capture most of the data also

needed for retail lending distribution analysis. For example, Home Mortgage Disclosure

Act data capture home mortgage loans that are CRA-qualified as well as the non-

qualified loans that are important to loan distribution analysis.

• Monthly balances. Collecting and maintaining data every month would be excessively

burdensome and unnecessary. In our discussion of performance measurement, we

recommend that the CRA-EM use retail loan originations and purchases, rather than

balance sheet data, so annual reporting should be adequate.

• Consumer loan data collection, recordkeeping and reporting should be required only of

banks that elect to count such loans and banks for which consumer loans comprise the

substantial majority of the bank’s total retail lending. For those banks, consumer lending

data would contribute to the CRA-EM. We recognize that a distributional analysis of

consumer loans would not be possible without industry-wide reporting of both LMI and

all other consumers, but we believe that the benefits of such analysis do not justify the

administrative burden. Accordingly, no bank should not be required to collect, keep or

report data on consumer loans made to middle- and higher-income borrowers.

• Retail deposits. Retail deposit data should be reported annually, not quarterly.

• Physical addresses. Banks should use the most recent mailing address on file for

depositors and consumer loan borrowers. Banks may not always know when a customer

moves due to increasing numbers of paperless communications.

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• Public disclosure of CD loans and investments. Data for all banks combined at the county

level should include the number and dollar volume of CD loans and investments as well

as totals for each of the eligibility criteria met per §25.04 (OCC) or §345.04 (FDIC).

• Implementation timing. Setting up and testing new data collection and reporting will be

difficult and require significant time. Data collection and recordkeeping should begin

with the start of the calendar year at least two years after publication of the final rule.

Data reporting should begin one year after data collection and recordkeeping

requirements begin. In addition, attending to recovery from the emerging Covid-19 crisis

is likely to make it harder for banks to devote the requisite resources to implementing a

radically new CRA rule.

Additional Comments

We also offer a few comments that do not directly address issues in the NPR.

• The OCC, FDIC and Federal Reserve Board should make CRA policy jointly. Inconsistent

rules create an unlevel playing field for banks and will be confusing, especially for bank

partners who will need to understand two sets of CRA rules and which one applies to

each bank it works with.

• The effective administration of the CRA requires well-trained examiners. The Agencies

should jointly develop comprehensive examiner training to ensure consistency and

support well-informed judgments about topics such as performance context, innovation,

and community needs, as well as CD practices.

• Performance evaluations should be published within 12 months after the close of an

examination period. Long-delayed performance evaluations serve neither communities

nor banks well. An ongoing non-CRA compliance examination that could affect a bank’s

CRA rating should not unduly delay publication of the rating.

Conclusion

Thank you for considering our comments. We would be happy to provide any additional

information or views that would be helpful to you.

Sincerely,

Benson F. Roberts

President and CEO

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Member Organizations Affordable Housing Tax Credit Coalition Alabama Multifamily Loan Consortium Ally American Bankers Association Foundation American Express America’s Federal Home Loan Banks Bank of America Bank of New York Mellon BMO Harris Bank Boston Private Bank and Trust Company California Community Reinvestment Corporation California Housing Finance Agency Capital One Centrant Community Capital Century Housing Cinnaire Citi Coastal Enterprises, Inc. The Community Development Trust Community Investment Corporation The Community Preservation Corporation Deutsche Bank Enterprise Community Partners E*TRADE Fifth Third Bank Goldman Sachs Housing Partnership Equity Trust Housing Partnership Network Illinois Housing Development Authority JBG Smith Washington Housing Initiative JPMorgan Chase KeyBank LISC / National Equity Fund Low Income Investment Fund Massachusetts Housing Investment Corporation Massachusetts Housing Partnership MassHousing Mizuho Americas Morgan Stanley

26

MUFG Union Bank, N.A. National Housing Trust NCALL Loan Fund Neighborhood Lending Partners, Inc. NeighborWorks America Network for Oregon Affordable Housing New York City Housing Development Corporation Northern Trust Ohio Capital Corporation for Housing Opportunity Finance Network Pembrook Capital Management, LLC PNC Community Development Banking Raza Development Fund RBC Global Asset Management, Inc. RIHousing Rocky Mountain Community Reinvestment Corporation Santander Bank, N.A. Silicon Valley Bank TD Bank, Community Development Truist Bank United Bank U.S. Bank Washington Community Reinvestment Association Wells Fargo Woodforest National Bank X-Caliber Capital